Thursday, October 13, 2005

I'm often asked for Long Tail examples outside of entertainment, especially those that apply to physical goods, not just digital bits sent down a broadband connection. There are quite a few (aside from eBay, the obvious one), but perhaps my favorite is Lego.

If you just know Lego from kids' birthday parties and the display shelves of a toy store, you've only seen half of the company. The other half is the Lego that caters to enthusiasts, ranging from kids who want more than the stock kits to adults who have turned to bricks as the ultimate prototyper's toolkit.

It all starts with Lego's mail-order business, which began as a traditional shop-at-home catalog and is now increasing organized around its website. In a typical toy store, Lego may have a few dozen products. On its online store, it has nearly 1,000, ranging from bags of roof tiles to a $300 Deathstar (shown). If you want to see how different the online market is from the traditional retail market for Lego, check out their topsellers list. Only a few of those products are even available in stores, and most of those are inexpensive items added to other purchases to bring them over $50 and thus qualify for free shipping.

It's worth pausing here and considering the Long Tail implications of this. At least 90% of Lego's products are not available in traditional retail. They're only available in the catalogs and online, where the economics of inventory and distribution are far friendlier to niche products. Overall, those non-retail parts of the business represent 10-15% of Lego's annual $1.1 billion in sales. But the margins on these products are higher than the kits sold through Toys R Us, thanks to not having to share the revenues with the retailer. And because the virtual store can carry products for all Lego fans, from kids to adult enthusiasts, and not just the sweet spot of nine-year-old boys, the range of prices can be a lot greater online, from $1 bricks to the aforementioned $300 Star Wars kit. (full post)